Nasdaq gave Coinbase a reference price of $250 on Tuesday, which would put its valuation north of $65 billion. It will trade under the ticker symbol “COIN.” Some analysts have predicted it could go as high as $100 billion.
“Coinbase is not just any crypto play, they’re one of the linchpins to the global crypto ecosystem,” said Dan Ives, managing director of equity research at Wedbush Securities. “Ultimately, how the Coinbase IPO and reception plays out is important for many other companies that are potentially following on the crypto front. It’s more than just Coinbase.”
Though interest is skyrocketing — the cryptocurrency market has doubled since January and smashed past $2 trillion this week — the landscape is peppered with risk. Digital currency is notoriously volatile, and lawmakers have expressed urgent need for regulation to combat criminal activity. In 2020, global darknet markets brought in a record $1.7 billion in crypto revenue, according to ChainAnalysis.
Founded in 2012, Coinbase provides a range of crypto-related financial services and aims to “create an open financial system for the world,” according to the prospectus it filed with the U.S. Securities and Exchange Commission. At the end of last year, Coinbase had 43 million users from more than 100 countries, as well as 7,000 retail and financial institutions on its platform. It has $1 billion in cash on hand.
Coinbase’s fortunes are closely aligned with bitcoin, which has more than doubled in value since the start of the year and swelled past the $63,000 mark for the first time Tuesday. The exchange, which gets more than 95 percent of its revenue from transaction fees, has raked in $1.3 billion in the past year as bitcoin made its meteoric rise.
“[Crypto] is still seen by many as a risky proposition and for good reason,” Danni Hewson, financial analyst with AJ Bell, wrote in commentary Tuesday. “But it’s also become a part of the global cash conversation. ”
About a third of adults worldwide — 1.7 billion — are unbanked, according to The World Bank. But global access to financial services is deepening in low and middle-income economies, according to the International Monetary Fund’s 2020 financial access survey. The progress in bringing more people into the folds of the financial system is in part due to “innovations such as digital financial services, including mobile money,” the survey said, which has taken “deep root” in sub-Saharan Africa and Asia.
In a letter included in the prospectus, chief executive Brian Armstrong said Coinbase’s ambition is to foster greater economic freedom by creating a more accessible financial system that complements, rather than replaces, the traditional economy, “much like email was to paper mail.”
“People are using cryptocurrency to earn, spend, save, stake, borrow, lend, vote … companies are being funded, getting early customers, and will eventually go public, all on blockchain,” Armstrong wrote. “The cryptoeconomy is just getting started.”
Coinbase acknowledged in the prospectus that there are risks ahead, “many of which are unpredictable and in certain instances are outside of our control,” including the unknowns of the regulatory environment, its dependence on cryptocurrency, its ability to “attract, maintain and grow” its customer base and potential competition.
Coinbase has registered nearly 115 million shares for its listing. But the valuation is more characterized by “flare and hyperbole” than substance, said David Trainer, chief executive of New Constructs, who notes that Coinbase was an $8 billion company just three years ago. To live up to a $100 billion valuation, Coinbase would have to eclipse the revenues of the biggest exchanges on the planet. Trainer thinks Coinbase should be valued around $19 billion.
“I’d avoid falling prey to the memestock frenzy around what is probably a good company,” Trainer said, “but at the proposed valuation is not even close to being a good stock.”
Coinbase’s first quarter earnings report inspired awe among some investors: the exchange earned $1.8 billion in revenue. That’s more than it took in all of 2020.
Coinbase is a pillar of the modern crypto ecosystem, but there’s no guarantee it can maintain dominance if the appetite for cryptocurrency continues to balloon. Already it faces competition from fellow exchanges like Kraken and Gemini, and digital financial services companies like PayPal and Robinhood.
“The valuations in the beginning stages of a nascent industry are extraordinary,” Trainer said, “But at the end of the day, if someone’s making really high margins, that means someone else can come in and take marketshare with a lower margin and still be very profitable.”
The choice to make a direct listing on the Nasdaq, rather than raising money on a road show through a traditional initial public offering, squares with Coinbase’s dark horse image. Last month, Armstrong and other executives took to Reddit for a three-day AMA (“Ask me anything”), fielding questions on everything from stock plans to the Coinbase’s stance on NFTs.